Spansion became the second major chip maker to file for bankruptcy protection during the global recession after the company failed to meet interest payments on a bond in mid-January.

The company on Sunday said the filing will give it time "to restructure its burdensome debt obligations" and focus more on products with greater profit potential. Spansion has enough money to continue normal business operations while it explores options to meet its long term cash needs, it said.

Spansion's filing makes it the second major chip maker to file for protection from its creditors after German DRAM maker Qimonda made a similar filing in January. A memory chip glut sent prices down over a year and a half ago, causing many chip makers to post losses. The global recession has made matters worse by hurting demand and making it harder for companies to secure loans.

Spansion said its U.S. subsidiaries also filed for Chapter 11 at the U.S. Bankruptcy Court for the District of Delaware at the same time These subsidiaries including Spansion LLC, Spansion Technology, Spansion International and Cerium Laboratories.

The Chapter 11 filings mean Spansion and its subsidiaries have defaulted on their debt and casts doubt on whether the world's largest maker of NOR flash memory chips will be able to continue to operate. Spansion will have to convince new investors that it will be able to make money in the future.

In the Sunday filing, Spansion said it is currently in discussions with creditors about providing "a debtor-in-possession (DIP) credit facility, while also simultaneously pursuing other options intended to provide the company with additional liquidity for its long-term cash needs."

The company's Japan units have also filed for bankruptcy in that country. But Spansion said its subsidiaries in other countries have not filed for bankruptcy protection.

The recession has been hard on the global chip industry. Chip manufacturers such as Spansion and Qimonda are normally impacted worse during downturns because of the massive amounts of money they have to spend to build new chip factories, which cost around US$3 billion each.

So far, only South Korea and Taiwan have signalled a willingness to help chip makers during the recession, while the U.S. has focused on financial institutions and auto makers.

Worldwide chip revenue is expected to fall 20 percent year-on-year to $199.2 billion this year, according to In-Stat. Industry revenue won't return to 2007 levels until at least 2012, the market researcher added.